UK residential property tax changes widely welcomed

Sweeping reforms to the Stamp Duty Land Tax (SDLT) in the UK have been announced which take effect immediately and will mean many people, especially first time buyers, will pay less property tax.
The reform announced by the Chancellor of the Exchequer George Osborne abolishes the previous archaic bandings with a more progressive system designed to help young professionals and families get on the housing ladder.
 

The new charge will only apply on a portion of value that is above each new level. So there will be no SDLT up to £125,000, 2% up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12% over £1.5 million.

Osborne pointed out that only on purchases of more than £937,000 will buyers end up paying more than they have done. It is also likely that the chances of a mansion tax should be introduced are much diminished.

The move has been widely welcomed by the property industry with experts saying it was long overdue. ‘The abolition of the archaic slab system will take the sting out of the tail for thousands of buyers on the lower rungs of the ladder. The new graduated system should help brighten the UK housing recovery in regions outside of London, where property prices are still battling back to pre-recession levels,’ said Peter Rollings, chief executive of Marsh & Parsons.

But he pointed out that it will add to the weight of the tax burden shouldered by those buying more expensive homes. ‘In prime parts of London, where 56% of property is worth £1 million or more, this will impact a significant proportion of ordinary working families,’ he said.

But he also said that he expects any additional strain on the top tiers of the housing market to be absorbed, and the natural rhythm of the property market won’t be disrupted as buyers investing in prime London property are accustomed to having to pay a higher price than elsewhere across the country and the unparalleled returns and capital growth on offer more than make it worthwhile, so demand won’t be quashed.

‘London property taxes have historically been cheaper compared to other world cities, so this overhaul brings it into line with rival global centres of investment and although, one-off purchase costs are always a bitter pill to swallow, it won’t deter people from snapping up their dream home in a desirable location. Buyers will soon adjust and it will simply become the norm,’ he added.

Peter Mackie, senior partner at independent buying agents Property Vision, pointed out that the change will help 98% of people trying to get onto the property ladder but the impact of the changes will be greater at the lower end of the market where buyers rely on borrowed money, rather than the higher end where if a buyer can afford to pay cash for a £50 million house they can afford the Stamp Duty.

‘The increases in Stamp Duty over £1.5 million will mean that buyers will need to find additional cash to fund the transactional costs which you cannot borrow. The remaining 2% isn’t just made up of overseas buyers increasing their property portfolios in prime central London. The new Stamp Duty bands will have severe effect on the middle market in London, particularly for families looking to buy a relatively modest family home between £1 million and £2 million in areas like Wandsworth, Battersea and Clapham,’ he explained.

‘Buyers will have to stump up as much as £100,000 in Stamp Duty for an ordinary Victorian semi-detached home which will force growing families to either, look at ways to extend their current home or move further out of London to find greater value,’ he added.

Stephanie McMahon, head of research at Strutt & Parker, believes it means there will no longer be talk of introducing a mansion tax. ‘It effectively replaces the need for an annual levy on properties above £2 million,’ she said.

She also believes that in the short term, current ongoing transactions will be impacted. ‘When any new tax is enforced this inevitably causes disruption. However, keeping the status quo was an unlikely outcome. Making this change immediate was sensible as it leaves no room for speculation and will not cause any further uncertainty which has been so damaging to our housing market around taxation changes in recent years. In the long term this new system shouldn’t cause significant market disruption over an extended period of time,’ she explained.

Brendan Cox, managing director of estate agents Waterfords, said the move will provide a much more stable structure and remove the distortion effect that the current system has on the housing market, where properties just above the threshold are difficult to sell.

‘Properties will at last reflect their true value, rather than being priced at a certain level to attract interest. I agree with Mr Osborne that this is a fair and workable reform to the taxation of property that will support those trying to get on the housing ladder,’ he explained.

‘The change will make for an interesting market in 2015. Without the crippling burden of the previous stamp duty rate, many first time buyers and second steppers who have been saving, may suddenly be in a position to raise the deposit required to obtain mortgage finance. This in turn should stimulate increased transactions at the lower end of the market, subsequently having a positive impact on overall market sentiment,’ he concluded.

Source: www.propertywire.com